National Minimum Wage

Tel: 01636 706543 E-mail: [email protected] September 2016 N E W S L E T T E R National Minimum Wage Brexit The hourly rates for under 25s will increase on 1 October: Since my last newsletter, the United Kingdom has voted in a referendum to leave the European Union. Age Old New What is the effect of this? Well, for the moment, £ £ absolutely nothing. For the time being, we are still a 21 – 24 6.70 6.95 member of the EU and still subject to all of its rules. 18 – 20 5.30 5.55 There is great uncertainty, though, about when we will 16 – 17 3.87 4.00 leave and what kind of trading relationship we can Apprentice under 19 or in first year 3.30 3.40 negotiate with the EU. What the UK wants may be very different to what the EU is willing to grant and we Employees over 25 have to be paid the National will undoubtedly be the weaker party in the Living Wage of £7.20 an hour, which was introduced in negotiations. Furthermore, the UK will no longer be April and is expected to rise in April 2017. part of EU trade agreements with the rest of the world, so will have to negotiate with all of those countries.

Interest Received The only certainty is that no Prime Minister will be in a hurry to call another referendum on any subject, Since April 2016, tax is no longer deducted from now we know that the result does not always come out interest paid by banks and building societies. This as expected. change was made because interest is now exempt from tax up to £1,000 a year for a basic-rate taxpayer or £500 a year for a higher-rate taxpayer. I expect that Accountancy Services next year’s tax returns will still require all interest to be declared, then the appropriate exemption will be As with other products, some people will deducted in the tax calculation. I will still, therefore, choose their accountants based solely on price. This need all interest. has several potential disadvantages which could outweigh the cost saving: While people should easily identify interest on savings accounts, they may overlook other one-off 1. The accountant may not be qualified (often payments of interest in receipts which are otherwise a former tax inspector) so is not a member exempt from tax: of a professional body which could handle complaints about poor service. 1. PPI compensation payments always include an amount of interest. 2. The accountant probably has no professional indemnity insurance to cover 2. A matured life assurance policy will have interest claims for negligence. added if there is a delay in making the payment. 3. The accountant is probably not doing such a In the past, omitting such interest from the tax thorough job as I would do, so is much more return would not have mattered for basic-rate likely to make errors in preparing the accounts taxpayers, because tax was deducted at source, but and tax return. now it could lead to an underpayment of tax.

The third point is particularly important, because I know from speaking to a tax investigation specialist Class 2 NI that many accountants do not, for instance, do a proper reconciliation of bankings and sales. That In my last newsletter, I explained the new system could mean that not all of the sales were included in for collecting self-employed National Insurance with the accounts, which would be a problem in a tax the Income Tax liability, so that the whole year’s inquiry. Conversely, it could also mean that sales were contributions for 2015/16 is payable in January 2017. I overstated by including non-business income, so too also said that, where a tax refund was due for 2015/16, much tax was paid. it would be paid in full and the NI would still be collected in January 2017. That was what happened On the rare occasions that my clients have been on the first two tax refunds I saw, but HMRC now investigated, HMRC has never found any such errors. seems to have changed its policy and the NI is being deducted when the repayment is made.